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Some of our industry’s largest firms have been reticent to acquire or merge in recent years. I can think of only one major deal in the last few years — and that was the surprising and still confounding acquisition between Next Fifteen and Applied Communications. The recent Next Fifteen acquisition of OutCast speaks volumes. It demonstrates that targeted specialist firms are doing very well in this emerging market and that these specialist firms are forcing the global agencies to take a long look.

We are one of those specialists and we are pleased to see OutCast find a successful suitor. I see this as a validation of our model — managed growth, long-term client relationships, great brand representation and talent on staff. Next Fifteen made a smart move here. All credit to that management team for recognizing OutCast’s value.

OutCast will join Applied and be a part of one of the fastest growing PR conglomerates in the world — Next Fifteen. And OutCast received a pretty good deal given Applied’s asking price a few years back.

For kicks, let’s evaluate the most significant technology PR agency acquisitions during the boom and compare it with the most recent deals. And don’t even get me started on the complexities of the payouts. The formula created to take the entire acquisition net is based on profit margins, which are often impossible to reach when considering the employee turnover rates and ability to staff the clients after the integration of the two companies.

Andy Cunningham sold her firm to Incepta for £49m in 2000 (about US $48M). The dollar was a "bit" stronger in 2000. (If Cunningham were sold today at that same price £49m = US $89M.)

Pam Alexander sold her firm to Ogilvy in 1998 for an undisclosed amount (industry rumor is approximately $25M dollars).

Applied Communications sold for what it publicly stated was $1.5M. This was a firm approximately the same size as OutCast when it was acquired.

And today, OutCast for $13M.

What a difference a few years makes. Is it a trend up? I think so.

But a more interesting trend is the increasingly blind eye companies are taking toward conflict issues. When I worked at Shandwick International and we represented Compaq, it was hard to find any company under our portfolio that sold servers, storage or computers. Frankly, for as good as that account was to Miller/Shandwick and then Shandwick International, it was tough to find business that did not compete.

But now, firms are back to using that infamous “internal firewall" language and companies are buying it. Next Fifteen owns several brands of PR firms. They also have Sun, IBM, Dell and EMC under a single company representation. Three of the largest server companies in the world are all hand-in-hand under one PR firm. This is very surprising, especially if you get a chance to talk with folks within those companies. They view their market and competitors as in the midst of a death match. But they amazingly don’t see a conflict at all with their PR representation.

To illustrate the point for the PR firm — each PR brand is run by a different set of executives. They use a separate email system and they are essentially separate firms. But they do all share the same CEO and the same parent company. They all share the same CFO at the top of that firm. Just when and where does the line get crossed?

It is not unethical at all and I am not saying that this is a problem. I just find it fascinating.

For me, this is great news. Consolidation is a fundamental piece of a thriving market.

Those on the market for purchase, the price has been set at $13M for a technology firm with just over 50 people. Those who are settled in to continue to offer a specialized focus for clients, the market just shrunk by one. Congratulations to OutCast and Next Fifteen and good luck in the future.

Add Your Comment2 Responses to “Consolidation is a Sign of a Thriving Market: Congrats Next Fifteen”

Excellent assessment of the potential market impact of Next Fifteen’s acquisition of Outcast. (And congrats on the comments in PR Week’s coverage of the story.)

However, it would have been great for you take a stronger stance on the conflict of interest issue. While I agree with you that it is “fascinating” that a number of highly competitive technology companies would be comfortable with a single holding company providing their PR representation, I also believe there are real problems (ethical and business) with this for both the clients and the agency.

I also found the PR firm’s structure rather fascinating. I’m actually surprised that they have separate executives, but I think I understand the rationale behind their organizational strategy. Seems a bit top heavy, but if it works, it works!